Post navigation

The Economics of Scarcity

Scarcity is the economic version of fear. Real scarcity does exist but most scarcity is a matter of perception or improper organization.

Industrial Age Economics was really about scarcity

The story of dealing with scarcity is the primary theme of the Industrial Age. Every economic theory attempts to explain the most “efficient” way to allocate resources. Each theory generally starts with some definition of the word efficient.

How many wars were fought over resources? The national boundaries of most of the countries of the Middle East were drawn by the maps of the oil deposits, not the natural surface features or the social organization of the people that lived there.

The machine enabled mass production and the workers running the machines became specialists. Society reorganized – cities grew, family size shrunk, everyone began delegating parts of their lives to other specialists (food production, education, child care). There were trade-offs since specialists COULD do things more efficiently, people lost their self-sufficiency. The business cycle began to affect everyone, not jus the wealthy. Downturns caused severe hardships among those least able to weather the financial storm.

Business conquest stories

Businesses that could discover, invent or harness some new efficiency would become the next big thing. The story of Henry Ford is unique because of the assembly line, not the car. McDonald’s success story is about a high volume mike-shake machine spawning a hyper-efficient business system. The burgers were almost a coincidence.

Government-sponsored efficiency was often unkind to individuals because government programs have a tendency to be one size fits all. The “machine” of state creates categories and pigeon holes that every participant but fit regardless of the reality of the circumstances.

The paradox of the Industrial Age is that the Industrial Economy was based on the premise of unlimited cheap fossil fuels to run machines. Never-ending growth flowed from the products created by the labor of crude oil’s derivatives.

Time to end Fear by replacing Scarcity with Abundance

The biggest challenge to establishing the Next Economy is to replace scarcity with Abundance.

We are learning how to harness the virtually unlimited resource of solar energy (and its renewable derivatives) into on demand human-usable form. There will be a transition. How do we best replace fossil fuels with renewables without creating infrastructure that limits increasing efficiencies?

As software redefines industry after industry, fewer resources will be required to deliver the same services. The publishing industry was dominated by a few companies that dictated which authors were published. Now, anyone with a few hundred dollars’ software can self-publish a book.

There are some resources that are truly scarce on earth. Until asteroid mining becomes a reality, (and I think it will happen this century) we learn to produce goods with fewer of these “rare earth minerals”.